“So far 382 accounts have been opened for capital market investments and several others are in progress,” says PSX chairman.
Non-resident Pakistanis (NRPs) appear to be making their way — albeit cautiously — in the stock market under Roshan Digital Accounts (RDA) announced by the State Bank of Pakistan (SBP) in August.
“So far 382 accounts have been opened for capital market investments and several others are in progress,” says Suleiman S Mehdi, chairman of the Pakistan Stock Exchange (PSX).
He said 25,000 bank accounts were opened under the scheme. Of these accounts, 382 were routed for equity markets. NRPs can now remotely open bank accounts in Pakistan through online digital portals without having to visit bank branches. They are not required to go through the hassle of paperwork. An overseas Pakistani who opens a stock investment account will be able to start trading within 24 hours. NRPs can fully repatriate their capital and returns any time.
Mr Mehdi calls the RDA a landmark initiative by the SBP and Central Depository Company (CDC). “A total of 341 stock investment accounts have been opened by CDC while 41 accounts are about to be opened,” he said, acknowledging that the Securities and Exchange Commission of Pakistan (SECP) and the PSX played a proactive role in approving the regulations. According to the latest figures, funds so far received for capital market investment are $21 million.
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Non-residents who park their savings in overseas banks and receive next to nothing in return may find Pakistani equities hard to resist initiative for NRPs
Under the RDA, the government has made another effort to encourage NRPs to invest in capital markets. An overwhelming number of 8.5m Pakistanis live and work outside the country. When the scheme was first announced in August, most major market players thought it would be another exercise in futility.
The number of resident Pakistani investors had simply failed to swell over decades with just about 3m accountholders — one of the lowest in the regional capital markets. It was, therefore, only fair to assume that only a dumb NRP would be willing to invest their hard-earned money in their home country. Besides, the lack of interest among expatriates in several similar schemes launched in the past made it doubtful that the RDA would succeed.
But some market players and institutional participants had exuded optimism. “It is possible that NRPs may be disinclined to put money at stake in the Pakistani equity market for day-to-day trading in the beginning,” one fund manager said.
He said non-residents who park their savings in overseas banks and receive next to nothing in return may find Pakistani equities hard to resist. Save for the last three bearish years, the local market has posted an average of mouth-watering 25 per cent yearly returns.
Some major market players believe NRPs may first test the waters by putting their money in the initial public offerings (IPOs) and exchange-traded funds (ETFs) as happened in the Mumbai market. Non-resident Indians (NRIs) started investing in the country’s stock market with those two products.
Incidentally, on both counts — IPOs and ETFs — Pakistan recently took big strides. Corporates were making a beeline for mobilising funds from the market by floating IPOs as they shook off the fear of undersubscription in the post–Covid-19 bull market that had already lifted the benchmark KSE-100 index from its lowest point in March to over 41,000 points, an incredible 14,000-point jump that placed the Pakistan market ahead of the rest in the region in terms of growth.
For the first time Pakistan, the capital market joined the $7 trillion ETF market by launching four such funds. NIT Pakistan Gateway ETF, UBL Pakistan Enterprise ETF, Meezan Pakistan ETF and NBP Pakistan Growth ETF have been listed on the PSX and started a slow start. As the investors given to trade in just one (the ready market) get to be familiar with the features of the new product, the ETF market will start to grow.
Arif Habib Ltd CEO Shahid Ali Habib says his company has opened 170 of the 382 accounts for share trading. He thanked NRPs for their trust. “RDA is a major positive deployment to facilitate overseas Pakistanis and to accelerate their financial inclusion in the overall economic growth of Pakistan,” he said. He added it was a major move towards digitisation and simplification from the stringent process of opening special convertible rupee account (SCRA), which require documentation and fulfilment of traditional banking requirements.
Market watchers suggest that instead of limiting RDAs for NRPs, the scheme should encompass all foreign investors in equities. This will stop the outflow of foreign investors portfolio investment, which has been one of the main hurdles to market growth.